2014: Not the revenue boost health systems, investors were hoping for

Hospitals were really counting on 2014 to bring some relief to the extraordinary downward revenue pressure of the past half decade, but it's not shaping up that way.

When the hospital industry agreed to support the 2010 Affordable Care Act, a.k.a. Obamacare, they struck a grand bargain with President Barack Obama and congressional Democrats: Accept lower payments and more risk in a variety of ways, but get that money back when 32 million people get health insurance to pay their bills.

The first part has happened, and it will continue to happen. The second part? Well, it's still coming. But much more slowly. And that's a huge headache.

"We were expecting one funding source to decrease as an industry, but having a greater number of insured," said Dawn Gideon, a consultant for Huron Consulting Services Inc. "The timing of those two being in parallel is important. And to the extent it's not happening, it's not just an investor problem it's a health care problem."

On Monday, Reuters reported that investors in for-profit publicly traded hospital companies have dramatically scaled back hopes for 2014 financial performance. The six major chains, including Reston Hospital Center owner HCA Healthcare, project earnings before interest, taxes, depreciation and amortization to increase 10.6 percent in 2014, compared to a 1 percent decline this year.

But most of that increase is pegged to reform, and stock prices for those hospitals have fallen back in the third quarter as investors realize the insurance enrollment isn't coming quickly.

"Investor expectations and the stock prices have cooled off a lot recently," Gabelli Funds portfolio manager Jeff Jonas told Reuters. "There's a realization that it's going to be a slow, gradual enrollment period and not quick out the door."

Nonprofit hospitals, more common in the Mid-Atlantic, don't have anxious investors but still must stay in the black plus a few percentage points to grow. Many that were aiming for expense reductions of between 7 percent and 9 percent are now thinking 11 to 15 percent, Gideon said.

The single biggest delay came from the U.S. Supreme Court, which made the Medicaid expansion part of the law optional for states in 2012. That's put Virginia's hospitals in a bind, as Richmond politicians argue over expanding. But also, work on the new online exchanges is proceeding slowly and rules forcing companies to cover their workers or pay a penalty were delayed — both factors that will put a hamper on insurance expansion.